Summary of this article
Trump’s 401(k) crypto plan sparks interest in retirement investing.
High volatility, regulatory ambiguity, and tax rules pose significant risks.
Experts advise 3–5 per cent crypto allocation for cautious, disciplined investors.
Cryptocurrencies are gaining wider adoption as an investment option because of their portfolio diversification benefits. Recently, US President Donald Trump announced plans to allow crypto investments within 401(k) retirement accounts, sparking increased interest in digital assets for long-term savings. The US Presidential Order may make it possible for American citizens to invest in riskier assets, such as cryptocurrency using their 401(k) savings accounts. This amendment would enable retirement plans in the US to include more than just conventional assets, such as stocks, bonds and cash equivalents if approved. This development is likely to mark a significant step toward integrating crypto into financial planning in the US.
This shift has also sparked the debate around the suitability of cryptocurrencies for retirement savings. Cryptocurrency offers specific opportunities for expansion and diversification, but it also comes with its own set of risks and difficulties. If investors plan to include crypto assets into their long-term retirement plan, it is important that they understand the benefits as well as the risks from crypto.
What Makes Crypto Attractive to Investors
Trading in crypto provides continuous access to the market, allowing investors to trade at any time. Investor confidence depends a lot on the transparency and security of transactions ensured by the underlying Blockchain technology. The growing acceptance of digital assets may enhance the future usability and integration in financial systems.
These factors also contribute to the growing appeal of cryptocurrencies. Sumit Gupta, co-founder of CoinDCX says: “Bitcoin is often called ‘digital gold’, as it shares the scarcity and store-of-value traits of precious metals, along with the added benefits of global accessibility and portability. It has shown potential as a hedge during currency debasement or inflation. A small allocation of 3-5 per cent in Bitcoin can provide diversification without compromising the conservative core of a retirement portfolio.”
Drawbacks of Including Crypto in Retirement Portfolios
Cryptocurrencies face regulatory ambiguity, and they not recognised as a legal tender in many countries, including India, which makes investors concerned about its long-term viability. Digital assets can experience extreme volatility, which can cause price swings in portfolio value, which is risky particularly for long-term retirement funds.
In addition, the absence of well-established investment protections means that there are few options in the event of fraud, hacking or losing access to cryptocurrency wallets. Crypto technology is vulnerable to hackers and operational failures.
The tax treatment of cryptocurrencies is also complex and constantly evolving. At present, crypto gains are taxed at a steep rate of 30 per cent with an additional 1 per cent deduction of tax at source (TDS) on transactions above a particular threshold, all of which are substantial reductions on overall returns. Also, the absence of traditional income features, such as dividends or interest means crypto relies heavily on price appreciation, which is unpredictable.
Madhupam Krishna, Securities and Exchange Board of India-registered investment advisor (Sebi RIA) says: “Cryptocurrencies can experience dramatic price swings, sometimes losing large portions of value in short time frames, posing risks to the stability of retirement savings. It is speculative in nature. Crypto assets also lack traditional fundamentals, such as earnings and dividends that makes their value largely driven by market sentiment. Crypto should be treated as a complement, not a replacement for traditional investments.”
Should You Consider Cryptocurrencies in Your Retirement Portfolio
Cryptocurrencies are highly risky and highly volatile assets. The decision to involve them in a retirement portfolio is entirely up to the individual's personal preferences and willingness to bear these risks.
Adds Madhupam: “Before adding cryptocurrency into retirement planning, it’s critical to take age, financial objectives, and risk tolerance into account. Investors with longer timelines (at least five years) and higher risk tolerance are better suited for crypto, while near-retirees or conservative investors should minimise or avoid exposure. Most managers recommend limiting cryptocurrency to a small portion of the portfolio typically between 1 per cent and 10 per cent to complement, not replace, traditional investments.”
Sumit adds, “More Indians are viewing crypto as a way to diversify their portfolios and plan for retirement. With India leading global adoption, crypto’s role in long-term investing is only set to grow. While many investors mistakenly see crypto as a quick path to retirement, overlooking its volatility and the need for diversification and disciplined strategies.”
He further says, “Investors must approach it cautiously, allocating 3-5 per cent, diversifying holdings, and rebalancing portfolios regularly. A disciplined, research-driven strategy is essential to managing risks and making crypto a meaningful part of retirement planning.”
